NZ dollar heads for 1.4% weekly gain as Chinese data points to improving global economy

The New Zealand dollar rose and is heading for a 1.4 percent weekly gain after figures showed the Chinese economy grew 6.7 percent in the first quarter, meeting expectations and reassuring investors that global economic growth won't be derailed.

The kiwi increased to 68.88 US cents at 5pm in Wellington, from 68.42 cents late yesterday and up from 67.92 cents at the end of last week. The trade-weighted index rose to 72.72 from 72.36 yesterday and 71.89 a week ago.

Chinese economic growth slowed from 6.8 percent in the fourth quarter of last year but fixed-asset investment rose 10.7 percent, beating estimates. China is New Zealand's biggest trading partner and the world's second-largest economy and its health typically benefits growth-linked currencies such as the kiwi. But the gains are capped because a healthy global economy also increases the prospects that the Federal Reserve will hike interest rates, which would benefit the greenback.

"What's really happened with the Chinese data is that it has confirmed what we've seen in the last month or so that the global situation has been steadily improving," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand. "That's lifted the kiwi over the last month or so as the US (Fed) has stayed dovish. But a better global economy should free up the Fed and allow the US dollar to strengthen."

Traders are now focussed on the release next Monday of the consumers price index for the first quarter, which the Reserve Bank has forecast to show a 0.2 percent quarterly for an annual increase of 0.4 percent. That keeps the annual rate below the central bank's 1 percent to 3 percent target band, which the bank doesn't expect to reach until the final quarter of 2016. Market expectations are for just a 0.1 percent increase in the first quarter.

ANZ Bank is predicting the central bank will cut the official cash rate in June to a record low 2 percent and lower the OCR again in November to just 1.75 percent.

The kiwi was little changed at 89.31 Australian cents from 89.38 cents yesterday. It rose to 48.69 British pence from 48.40 pence yesterday, and increased to 61.18 euro cents from 60.74 cents. It gained to 4.4681 yuan from 4.4353 yuan.

The two-year swap rate rose 3 basis points to 2.24 percent and the 10-year swaps rose 1 basis point to 2.95 percent.

(BusinessDesk)